We wrote recently about the bogus Q4 GDP number which was reported initially at 5.7% last month. We believe the final number will come in somewhere between 2.0% and 3.0% when all is said and done - although we won't likely see that admission from our clever government bean counters for a year or so. Meanwhile, it looks as if there could actually be an upward revision in the GDP number as the December inventory number was likely flat, while the BEA assumed a sharp inventory liquidation in December. It is possible that the GDP number might temporarily be revised as high as 6.7% for Q4 2009, leading people to assume that a strong economic recovery is in place. Given that over 4% of the Q4 number would be due to a decline in the rate of decline of inventory liquidation and that personal income took a bigger hit than previously thought (based on Friday's downward revision in payrolls and hours worked) we are unable to get on board with the idea that the U.S. economy is powering strongly ahead. Rather, given continued weak end demand, we see an economy poised to decelerate back into recession sometime in 2010 - likely in the third quarter. Our confidence in that forecast is only increased by the continued and increasing contraction in real M3 (the broadest measure of money supply). As previously mentioned, contraction in real M3 is historically a 100% predictor of economic contraction in the following two to three quarters. We think it unlikely that it will be different this time.
And, of course, a renewal of the recession means a continuing rise in unemployment and decline in home prices among other (bad) things. A double dip recession is also unlikely to be a positive for the U.S. stock market....
